Innovation flowing through a funnel?
For innovation to be succesful, it has to be managed as a business process. That is a common conclusion in best practice surveys such as the Innovation Global 1000 survey, nicely summarized here:
It’s the process, not the pocketbook. Superior results seem to be a function of the quality of an organization’s innovation process — the bets it makes and how it pursues them — rather than the magnitude of its innovation spending (Booz & Co, 2006).
The main reason for this is that innovation requires a set of competences (at the individual but also at the organization level) that need to be practiced; I prefer to call them the innovation muscles. These include ideation and scouting, continuous improvement, as well as disruptive thinking, but most importantly: flexible project execution and strategic portfolio decision-making.
Without this process mode, individual innovation spurs are likely to fail. This has to do with both the aforementioned innovation muscles that need practice, and also with the inherent uncertainties in innovation.
Unique property of the funnel: showing risk reduction over time
Innovation projects are uncertain by nature; they include “newness” in any number of dimensions: new technologies, new markets, new applications, new target user needs, new channels, new business models, etc. Each of these newnesses brings risk to the project’s plan. The innovation management process is about acknowledging these risks and managing them wisely through risk management at the project level and the portfolio level. The main focus of the funnel is to support this risk management: the funnel shows the risk profile of projects as they progress through the stages of the innovation process. High risk projects are outside the funnel and low risk projects flow straight through the middle. The shape of the funnel sets the required risk reduction over time.
In our FLIGHTMAP funnel charts, the default value for the size of the project bubbles is the current stage costs. This helps to make sure that high risk projects have small budgets until their risk is significantly reduced. A good way to present risk is to express it in terms of Technical and Commercial Probability of Success: the probability of launching the innovation at all and the probability of meeting the market demands after launch (“can we build it” versus “will they buy it”).
Again, with the right process in place, these probabilities do not need to be guessed but they can be estimated based on the risk drivers in each project and the historical success rates of the innovation process. Maybe the biggest value of the funnel is to make it okay to discuss that this probability of success is not 100%.
Good portfolio decisions require the funnel view
Inherent in a good innovation process is the focus on the entire business case of each innovation: its costs, its benefits, and its risks. In addition to individual risk profiles, the funnel also shows the progress of projects. This helps to make sure that a certain flow is achieved: even if some projects do not succeed, we have alternatives for meeting the business needs in the innovation pipeline. In this way, the funnel supports the proper balance between portfolio management: do we have the right projects, and project execution: are we delivering each project in line with its best possible business case.
Let me know if you have good examples of how to visualize the innovation funnel.